• Labor & Employment Law Report: DOL Proposes "Streamlining" White Collar Exemption"
  • July 29, 2003 | Authors: Ronald M. Gaswirth; Carrie B. Hoffman
  • Law Firm: Gardere Wynne Sewell LLP - Dallas Office
  • In March 31,2003, the United States Department of Labor issued proposed new regulations which the DOL anticipates will streamline the so-called "white collar" exemptions under the federal Fair Labor Standards Act (FLSA). The FLSA was enacted in 1938 and establishes minimum wage rates and overtime obligations for most U.S. employers. The "white collar" exemptions remove bona fide executives, administrators and professionals from those requirements. These exemptions have not been updated since the 1940's and even the Secretary of Labor has recently recognized that they simply do not fit the 21st century workplace. New Salary Test The first of the proposed changes calls for a raise in the minimum weekly salary paid to a salaried, exempt employee. The proposal raises that minimum from the generally used a $250 "upset salary" test (and lesser used $155 or $170 per week) to $425 per week. In proposing this change, the DOL recognized that the $250 "upset salary" was barely more than amount a non-exempt worker who is paid minimum wage earns for a 40-hour week. The DOL originally considered higher weekly salaries but decided that $425 was a reasonable compromise considering the current minimum wage levels. This proposal, if enacted, means than an employee must earn at least $22,100 per year to be considered an exempt employee as well as meet other requirements. On the other end of the spectrum, the DOL proposes that an employee who earns at least $65,000 per year would be exempt as a highly compensated employee provided that he or she is "performing non-manual work that is identifiably executive, administrative or professional in nature even if all of the requirements of a particular exemption are not met." Executive Exemption The executive exemption would remain largely unchanged. The proposed change blends the requirements of the current long and short test for exemption under the executive exemption. An executive would still be required to have as his primary duty the management of an enterprise or a recognized department or subdivision and customarily and regularly direct the work of two or more full-time employees. The DOL proposal adds the requirement that the executive have the authority to hire or fire employees or make recommendations that are given significant weight. This was previously only required if the employee earned less than $250 per week but at least $155 per week. Administrative Exemption The administrative exemption has the most significant proposed changes. To qualify under the administrative exemption, an employee must have the primary duty of performing office or non-manual work directly related to management policies or general business operations of the employer or the employer's customers. This requirement continues from the current regulations. Under the proposal, however, the requirements of exercising independent judgment and discretion are removed and replaced with the requirement that the employee hold a position of responsibility with the employer, defined as either (1) performing work of substantial importance or (2) performing work requiring a high level of skill or training. Professional Exemption The professional exemption would be divided into the learned professional exemption and the creative exemption. The learned professional would continue the current requirements of having a degree but also permit an employee to qualify under the exemption who has acquired an equivalent level of knowledge through a means other than formal education. The creative exemption proposal makes no changes from the current regulations. Miscellaneous Changes Other interesting proposals would allow employers to suspend an exempt employee for any disciplinary reasons for a full day or more and dock their pay without losing the exemption. The DOL cites the need to permit employers to suspend employees due to sexual harassment for less than a full week as the reason for this proposed change. Additionally, the DOL proposes revisions to the ability of an employer to make improper deductions and/or correct an improper deduction without losing the exemption. Under the proposal, an employer would not lose an exemption because of isolated improper deductions. Instead, the exemption is lost only based on a pattern or practice of improper deductions and even then only for the employees in the same job classification and working for the same manager who is responsible for making the improper deductions. Moreover, if the employer has a written policy prohibiting improper deductions, publishes the policy, and reimburses the employee for an improper deduction, the employer would not lose the exemption unless there are repeated and willful improper deductions. The DOL also proposes minor changes to other regulations affecting salaried exempt employees. The proposed new regulations and the DOL's related commentary can be found at www.dol.gov. The DOL is accepting written comments through June 30, 2003.